Rho of a put option formula

Tags: options risk management valuation and pricing

Description of the Rho of a put option formula

Formula for the calculation of the rho of a put option. Rho is an option value's sensitivity to a change of the risk-free interest rate.

ρ = - K t e^{- r t} N (- d 2) w h e r e : d 1 = \frac{l n (\frac{S}{K}) + (r + \frac{σ^{2}}{2}) t}{σ \sqrt{t}};

d 2 = d 1 - σ \sqrt{t}

K

Option

N

Standard normal cumulative distribution function

r

σ

of the

t

Time to option's expiry